May Philadelphia Fed index shows growth gains, rising costs

Manufacturers report continued growth in May, and the Federal Reserve Bank of Philadelphia Report on Business respondents reported increasing costs.

The region's manufacturing sector expanded in May, at a slightly faster pace than in April, as the general business conditions index increased to 34.4 from 23.2.

Economists surveyed by IFR Markets predicted a reading of 21.0 for the index.

The prices paid index was 52.6, down from 56.4 last month, new orders index surged to 40.6 from 18.4, shipments gained to 25.8 from 23.9, the unfilled orders index rose to 15.3 from 7.8, the delivery times index slid to 18.5 from 20.7, inventories dropped to 8.1 from 9.5, prices received jumped to 36.4 from 29.8, the number of employees index grew to 30.2 from 27.1, and the average employee workweek gained to 34.4 from 21.6.

“Price increases for purchased inputs were reported by 55% of the manufacturers this month, down slightly from 59% in April,” according to the report. “The current prices received index, reflecting the manufacturers’ own prices, increased 7 points to a reading of 36.4, its second consecutive month of increase and highest reading since February 1989.”

The six months from now general business conditions index fell to 38.7 from 40.7 in last month’s survey, the prices paid index was at 63.4, off from 66.8 in the prior survey, and the prices received index declined to 33.6 from 47.9. The capital expenditures index fell to 21.6 from 29.8 last month. The number of employees index grew to 42.8 from 34.6, while the average workweek index decreased to 10.1 from 14.0. The new orders index rose to 40.3 from 37.2, shipments slipped to 46.8 from 47.9; and the unfilled orders index climbed to 9.4 from 7.6. The delivery times index fell to 7.5 from 9.6, and inventories slid to 14.8 from 16.5.

In a special question, firms told the Fed they expect prices of their products to rise 3.0%, same as the median forecast last time the question was asked. Firms see a median inflation rate of 2.5% for the next year, also the same as when the question was last asked in February. However, the 10-year average inflation rate is seen at 2.0% now, compared to 3.0% the last time the Fed asked.

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